ON24 (ONTF)

Digital engagement platform ON24 (NYSE:ONTF) reported revenue ahead of Wall Streets expectations in Q3 CY2025, but sales fell by 4.7% year on year to $34.6 million. The company expects next quarter’s revenue to be around $34.2 million, close to analysts’ estimates. Its non-GAAP profit of $0.03 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Powering over 1,700 companies' virtual marketing efforts since 1998, ON24 (NYSE:ONTF) provides a cloud-based platform that enables businesses to create interactive digital experiences and capture actionable data from customer engagement.

Online marketing and sales are expanding at a rapid pace. Compared to the offline advertising market, which has been affected by the Covid pandemic and is challenging to measure and improve, more organizations are expected to adopt data-driven digital engagement platforms to better engage their customers online.

ON24 competes with web conferencing platforms like Zoom (NASDAQ:ZM) and Microsoft Teams (NASDAQ:MSFT), virtual event solutions from Cvent (NYSE:CVT) and Notified, and marketing engagement tools from Adobe (NASDAQ:ADBE) and Cisco (NASDAQ:CSCO).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, ON24 grew its sales at a weak 2.1% compounded annual growth rate. This fell short of our benchmarks and is a rough starting point for our analysis.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. ON24’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 9.1% annually.

This quarter, ON24’s revenue fell by 4.7% year on year to $34.6 million but beat Wall Street’s estimates by 2.2%. Company management is currently guiding for a 6.8% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 3.4% over the next 12 months. While this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

ON24’s billings came in at $30.21 million in Q3, and it averaged 8.1% year-on-year declines over the last four quarters. This performance mirrored its total sales and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

It’s relatively expensive for ON24 to acquire new customers as its CAC payback period checked in at 50.6 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.

For software companies like ON24, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

ON24’s gross margin is better than the broader software industry and signals it has solid unit economics and competitive products. As you can see below, it averaged a decent 74.9% gross margin over the last year. That means for every $100 in revenue, roughly $74.93 was left to spend on selling, marketing, and R&D.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. ON24 has seen gross margins improve by 2.4 percentage points over the last 2 year, which is very good in the software space.

This quarter, ON24’s gross profit margin was 74.7%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

ON24’s expensive cost structure has contributed to an average operating margin of negative 27.9% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if ON24 reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Over the last two years, ON24’s expanding sales gave it operating leverage as its margin rose by 6 percentage points. Still, it will take much more for the company to reach long-term profitability.

ON24’s operating margin was negative 23.1% this quarter. The company's consistent lack of profits raise a flag.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

ON24 has shown poor cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.7%, lousy for a software business.

ON24’s free cash flow clocked in at $2.16 million in Q3, equivalent to a 6.2% margin. This result was good as its margin was 5.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict ON24’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 4.7% for the last 12 months will decrease to 2.7%.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

ON24 is a well-capitalized company with $175.2 million of cash and no debt. This position is 83.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly ON24 blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed and its billings fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 8.8% to $5.42 immediately following the results.

Updated: December 3, 2025 at 9:19 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in ON24.

ON24 doesn’t pass our quality test. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its gross margin suggests it can generate sustainable profits, the downside is its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. On top of that, its operating margins reveal poor profitability compared to other software companies.

ON24’s price-to-sales ratio based on the next 12 months is 1.8x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $6 on the company (compared to the current share price of $5.95).